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Calloway Laboratories Pays $20 Million to Resolve Allegations of Kickbacks and Fraud on State Medicaid Program

Company and Individuals Indicted on 42 Counts for Pervasive Kickback Scheme and Medicaid Fraud

WOBURN — A medical testing company will pay $20 million in restitution to resolve allegations of an elaborate kickback scheme that cost the Massachusetts Medicaid program (MassHealth) millions of dollars for unnecessary urine drug screens, Attorney General Martha Coakley announced today.

“We allege that this kickback scheme was one of the most egregious abuses of the Medicaid program our office has handled,” AG Coakley said. “This agreement allows us to return significant and much needed funding to MassHealth and to taxpayers. We will continue to prosecute the individuals we believe were responsible for carrying out these serious allegations.”

“These allegations point to a scheme that is a blatant abuse of taxpayer dollars through the Commonwealth’s Medicaid program, which provides vital services to children, low-income families and people with disabilities, and others in need of quality, affordable health care,” said Medicaid Director Dr. Julian Harris. “We are thankful to Attorney General Coakley and her staff for securing a $20 million payment. We will continue to actively partner with the Attorney General to prevent fraud, so that we can protect the people who depend on Medicaid services and the taxpayers who support our programs.”

On July 2, 2010, Calloway Laboratories, Inc., its Chief Executive Officer Arthur Levitan and Chief Operating Officer Patrick Cavanaugh, as well as two employees of a sober house were indicted on 42 counts by a Middlesex Grand Jury in connection with a wide-ranging investigation by the AG’s Office.

According to the indictments, Calloway Laboratories, engaged in a pervasive kickback scheme involving two straw companies that funneled monetary incentives to employees at several sober houses and a medical office to illegally obtain urine drug screening business paid for by MassHealth, the Commonwealth’s Medicaid program.

The indictments also alleged that the company falsely billed MassHealth for urine screening services that were not ordered by a doctor or authorized prescribers for a medically necessary purpose as required by law. The settlement resolves the 21 corporate indictments brought against Calloway Laboratories. The AG’s Office continues to prosecute the remaining 21 indictments against the individuals involved in the case.

In addition to reimbursing state taxpayers in the amount of $20 million, Calloway Laboratories has agreed that Levitan and Cavanaugh will be no longer be employed by or consult with the company, or any entity owned or controlled by the company, in any way. The company has also agreed to a comprehensive three-year compliance and monitoring program, involving an independent compliance reviewer, as well as annual site and record audits.

This agreement is the seventh settlement resulting from an ongoing industry-wide investigation by AG Coakley’s Medicaid Fraud Division into urine drug tests billed by independent clinical laboratories to the state Medicaid program. To date this investigation has returned approximately $30 million to the state Medicaid program and resulted in numerous criminal indictments.

Assistant Attorney General Toby Unger, of Attorney General Coakley’s Medicaid Fraud Division, Criminal Bureau Chief Chris Walsh, and Deputy Chief of the Medicaid Fraud Division Steven Hoffman, prosecuted this case. The case was investigated by investigators Joseph Shea; Denise Long; Lisa Bailey; Donna Mitchell; and Erica Schlain. Both the Massachusetts Medicaid Program and the Department of Public Health assisted in this investigation.